Lofty loonie pushes shoppers south

The strong dollar is not only eroding the ability of Canadian firms to compete in the U.S. market, as the Bank of Canada warned Wednesday, it’s also undermining the Canadian economy by luring more and more Canadians south to U.S. shopping malls.

“Armed with a lofty loonie, Canadians headed south of the border in droves during November, experiencing ‘Black Friday’ discounting first hand,” BMO Capital Markets economist Michael Gregory said Wednesday in the wake of a report showing a double-digit increase from a year earlier in the flow of Canadians to the U.S. during the month.

Statistics Canada figures show Canadians made 3.6 million trips to the U.S. in November, 12.4 per cent more than in November 2009 and a seasonally adjusted increase of 3.2 per cent from October.

Further, 2.08 million of those trips were same-day trips, which are viewed as a proxy for cross-border shopping, and which were up an even heftier 13.7 per cent from a year earlier.

And it probably will get worse for Canadian retailers.

“This trend is likely to pick up in the months ahead as the currency has since strengthened above parity, and as America’s warmer southern climates attract vacationers and homebuyers,” Gregory said.

Also, the Bank of Canada is now projecting that the Canadian dollar will remain at par with the U.S. dollar through next year.

The rise in the loonie has also made shopping trips here by Americans more costly, which in part would help explain the drop-off in same-day car visits from there.

Americans made 1.7 million trips to Canada in November, down 2.1 per cent from October, with the largest drop being same-day car trips which were down 4.3 per cent, Statistics Canada said. Visits from other countries were also down 3.2 per cent to 357,000.

“Travel abroad by Canadians reached 4.7 million in November, an increase of 2.3 per cent compared with October,” it said. “In the other direction, travel by foreign residents to Canada decreased 2.3 per cent to 2.0 million.

If the report was bad news for Canadian retailers they were not alone in November, as Statistics Canada also reported that Canadian manufacturing sales unexpectedly fell during the month. However, analysts were optimistic about a rebound for manufacturers, noting that the weakness was focussed in the auto sector, reflecting the shutdown of several auto plants, and that the recovery in the U.S. economy should boost production of autos and other Canadian manufactured goods.

“The potential for higher U.S. demand is definitely good news for the export-oriented manufacturing sector,” said TD Economics economist Sonya Gulati.

“Counterbalancing these prospects, however, will be a strong Canadian dollar for some time to come and relatively weak productivity gains this far,” she added, echoing comments earlier Wednesday by Bank of Canada governor Mark Carney who warned businesses here that they must take measures to reverse their lagging productivity because there will not be any quick relief from the strong currency.